Jump to ContentJump to Main Navigation
Corporate power and social policy in a global economyBritish welfare under the influence$

Kevin Farnsworth

Print publication date: 2004

Print ISBN-13: 9781861344748

Published to Policy Press Scholarship Online: March 2012

DOI: 10.1332/policypress/9781861344748.001.0001

Show Summary Details

Introduction: globalisation, corporate power and social policies

Introduction: globalisation, corporate power and social policies

(p.1) One Introduction: globalisation, corporate power and social policies
Corporate power and social policy in a global economy

Kevin Farnsworth

Policy Press

Abstract and Keywords

Interest in the power and influence of business is probably higher today than at any time in the past. Academics, journalists and political activists warn of the grave dangers posed to nations and their citizens by large corporations; governments regularly remind their citizens of the policy pressures they face from business under conditions of global competitiveness; and transnational corporations use, with increasing regularity, the threat of taking their investments elsewhere should national policies contravene their interests. While questions regarding the opinions and influences of business have been raised with increasing frequency, few studies have investigated these issues in any detail. This chapter examines business influence on social policy; the variables and scope of this book; the theoretical framework; business power and influence on social policy; structural power and social policy; and corporate agency and social policy with regard to business opinion, business action, and business influence.

Keywords:   social policy, business power, structural power, business opinion, corporate agency

Interest in the power and influence of business is probably higher today than at any time in the past. Academics, journalists and political activists warn of the grave dangers posed to nations and their citizens by large corporations; governments regularly remind their citizens of the policy pressures they face from business under conditions of global competitiveness; and transnational corporations use, with increasing regularity, the threat of taking their investments elsewhere should national policies contravene their interests. The gap between the public and private sectors, meanwhile, has become so narrow that few public policy decisions and public infrastructure investments are undertaken without the inputs of business. Despite the challenges these developments present for social policy, however, their implications for social policy have been under-researched. While questions regarding the opinions and influences of business have been raised with increasing frequency, few studies have investigated these issues in any detail, let alone attempted to provide convincing answers to the questions they raise. This book represents one of the first real attempts to investigate business views and influence on social policy outcomes.

Business influence on social policy

Explanations documenting the development of social policies have been wide ranging in every way bar one: the interests and institutions of business have generally been overlooked. Explanations have included:

  • the moral conscience of the middle classes and of government (Fraser, 1984, pp (134–7));

  • the breakdown of former welfare institutions (Flora and Alber, 1981);

  • the reliance of competitive markets on a healthy, well-educated workforce (Peden, 1985, pp (11–13));

  • the extension of citizenship rights and the empowerment of individuals (Marshall, 1950);

  • the dynamic of state bureaucracies (Niskanen, 1971);

  • and the political mobilisation – as well as the fear of the political mobilisation – of labour (Navarro, 1978, 1989; Korpi, 1983; Castles, 1986, 1989).

Those theorists who have discussed the role of business in welfare development have tended to draw on taken-for-granted assumptions about the position of (p.2) capital in relation to social policy. Waged labour has been portrayed largely as pro-welfare, capital as anti-welfare (see, for example, Navarro, 1989, pp (388–93)). Social policies are said to develop out of these conflicting interests, reflecting the winners or losers on either side of the class divide. The interests of capital as a whole have been grouped together in a united mass, and the many fractional interests neglected. The situation was summarised by Hay in 1977 (pp (435–9)):

In Britain … the attitudes of the business community to social welfare legislation have not been seriously examined.… [There has] been no systematic study of the attitude of employers to welfare legislation, or of their influence on the evolution of social policy. The reason for this neglect may be the underlying assumption of most liberal historians that welfare legislation primarily benefits the working class and is thus largely to be explained by the pressure of the latter for legislation or by concessions by the political elite to such actual or potential pressure.

Neither has the situation improved greatly since the 1970s. Writing in 1991, Rodgers (1991, p 315) echoed Hay’s earlier remarks:

… though employers were visible, and even conspicuous in the debates over the economy, unemployment and the treatment of the unemployed (during the inter-war years), few historians have devoted serious attention to their activities and proposals.

The issue of business influence on social policy has not been totally absent from the literature, however. The globalisation literature has raised real concerns over the growing power of corporations and their impact on the sustainability of welfare states. Research has also examined employer attitudes to social policies (George et al, 1995; George, 1996; Taylor-Gooby, 1996), the increasing opportunities for private sector involvement in key welfare services (Balanya et al, 2000; Pollock et al, 2001) and the growing impact of the private sector on social policy more generally in the US and the UK (Mares, 2001; Whitfield, 2001a; Swenson, 2002). Yet huge gaps remain concerning the approach, involvement, power and changing influence of business on contemporary social policy.

Defining the variables and scope of this book

Social policy is viewed here in its broadest terms, to incorporate public and occupational provision in the main areas that make up the welfare state: education and training, healthcare, social security and housing. The time period on which it focuses is 1979 to 2002 – spanning the complete period of office of the Conservative government and the complete first term of the Labour government. This period witnessed dramatic transformations that impacted heavily on British social policy, including a clouding of the boundaries between public and private (p.3) services, changing business–government relations (not to mention business– labour relations), fluctuating economic fortunes and economic restructuring. Business, this book argues, is essential to an understanding of many of these social policy developments for several interconnected and mutually inclusive reasons:

  1. 1. Many of the changes in social policy introduced since the 1970s have been in response to business demands or government perceptions of the needs of business.

  2. 2. Globalisation has increased the power of business over nation states, and while this has not inevitably led to welfare retrenchment in all states, it has certainly led to transformations in British social and fiscal policies.

  3. 3. Successive governments keen to control expenditure and introduce private sector values and business methods into services have increasingly incorporated business into the management of many areas of the welfare state. Most parts of the public sector have been forced to consult with the private sector when determining the shape and delivery of services.

  4. 4. Business has become increasingly interested in the ways in which occupational and community-wide social provision may help to improve competitiveness, recruitment, productivity and corporate image.

  5. 5. Welfare services, from hospitals to schools, have been increasingly opened up to private markets.

This book examines the role that business has played in the development of these policies and how it has reacted to these new opportunities for involvement in the welfare state.

Before proceeding, however, it is important to clarify what is meant by the term ‘business’. Reference has already been made to the views and influence of business as if referring to one clearly defined and distinguishable entity where, in reality, business consists of individuals (business people), groups (the business class) and institutions (business associations and firms). Business views may be shared widely, or may represent the specific voice or voices of key individuals, sectors or firms of a certain size trading within certain locations. It is important to bear all this in mind whenever generalisations about business are made. This book examines various business engagements with social policy, although practical constraints limit the main focus to the largest and most important business organisations.

Confusion also arises over the use of the term ‘capital’, which is often used interchangeably with ‘business’. Political and social science traditions dictate that Marxists utilise the terms ‘capital’ and ‘capitalist’ where pluralists and other non-Marxists deliberately do not, favouring instead more technically precise and politically unloaded terms such as ‘firm’, ‘corporation’, ‘director’ and ‘business person’. In addition, both the terms ‘business’ and ‘capital’ are used within the literature to refer to economic entities (corporations and associated financial holdings) and the social class that owns and controls them. This book generally (p.4) utilises non-Marxist terminology, more through a desire to avoid ambiguity than to indicate any particular ideological bent.

Theoretical framework

By focusing on business interests, this study situates itself alongside the work of those who suggest that, as a political and economic force, business is a special case: it has the ability to initiate, steer and constrain government policies in ways not open to other groups. Such a position came to dominate much socio-political analysis in the 1970s, but has declined in importance in recent years. The ‘privileged interest’ thesis has tended to suffer from the charge that it is too rigid and overly deterministic to be useful as a theory of power and influence in contemporary society. My response to this, drawing on the work of Vogel (1989, 1996) and Hacker and Pierson (2002), is to stress that, while business is a privileged interest, its power and influence vary over time and between policy areas; its dominance is neither constant nor unassailable.

The theoretical position of the book draws on the work of institutionalists. Despite the well-documented problems with institutionalist theory, relating in particular to the definition of institutions (Pontusson, 1995), it does offer a flexible and nuanced approach to the study of power and politics. While institutions are difficult to conceptualise and define, North’s work is useful in defining institutions as simply constituting “the rules of the game in a society or … the humanly devised constraints that shape human interaction” (1990, p 3). Thelen and Steinmo (1992) are also helpful here. They argue that the definition of institutions

includes both formal organizations and informal rules and procedures that structure conduct…. Thus, clearly included in the definition are such features of the institutional context as the rules of electoral competition, the structure of party systems, the relations among various branches of government, and the structure and organization of economic actors. (Thelen and Steinmo, 1992, p 2)

Of particular interest to this study are policy and decision-making institutions, welfare institutions, and business institutions as economic actors, including business interest associations (BIAs) and enterprises.

Institutionalism also emphasises the importance of policy settings to an understanding of the motivations and perceptions of business actors within the policy process (Pierson, 1995). Political struggles are, as Thelen and Steinmo put it, “mediated by the institutional setting in which they take place” (1992, p 2). They go on to state that:

On the one hand, the organisation of policy making affects the degree of power that any one set of actors has over the policy outcomes…. On the other hand, organisational position also influences an actor’s definition of (p.5) his own interests, by establishing his institutional responsibilities and relationship to other actors. In this way, organisational factors affect both the degree of pressure an actor can bring to bear on policy and the likely direction of that pressure. (Thelen and Steinmo, 1992, p 5)

Hence, institutions help shape the interests of agents and help agents make sense of, and become aware of, their available options in policy arenas. Business influence will be shaped to some extent by state actors and available openings to state institutions. Moreover, as we have seen already, how business defines its own interests in relation to social policy, or indeed whether it is interested in social policy at all, will also depend on the institutional setting, including the actions of non-business actors, as well as the size, status and type of the business in question.

For institutionalists, structures “define the parameters of policy-making at the broadest level” (Thelen and Steinmo, 1992, p 10). Unlike institutions, which are often highly changeable, structures are deeply embedded in societies. They consist of taken-for-granted relations that define the workings of a given society. They constrain the choices or activities of agents. Where institutions are the rules of the game, structures help to tighten those rules and constrain the players. Given this, it is necessary, according to Thelen and Steinmo (1992, p 11), to “explore the effects of overarching structures on political outcomes” but at the same time avoid “the structural determinism that often characterises broader and more abstract” theoretical approaches.

Structures therefore reduce and constrain the choices available to policy makers. They are not, however, inevitably determining. States themselves may respond to structural pressures in different ways according to a range of other factors, although while their response is often predictable, it is by no means inevitable. The actions of business, meanwhile, have to be contextualised. Business’ interest in, view of, and influence over, social policy is likely to vary according to a range of variables: the structural context, the actions of rival interests, the anticipated consequences of acting or not acting, and who or what is acting (whether a large or small firm, a financial or industrial corporation, an individual business person, enterprise or a BIA). Business agents will consider a range of factors when deciding on appropriate actions, although it is important to stress that, for institutionalists, actors are not all-knowing maximisers (Thelen and Steinmo, 1992, p 8). Actors can behave with some rationality, but the consequences of their actions are not always predictable, and they do not necessarily follow a consistent and logical path. Actors will also often seek to deliberately shift the goalposts during political negotiations by making demands that they know are unrealistic and unrealisable (Pierson, 1995, p 11). Business voice and actions, therefore, depend on a complex range of factors. Whether business is interested in social policy, whether it formulates an opinion or viewpoint, whether it chooses to act, and whether it ultimately influences policy making are all influenced by complex decisions that are taken by individual actors operating within institutions that exist within wider structures.

(p.6) Investigating business power and influence on social policy

The distinction between structure and agency that institutional theory draws our attention to is a useful one in trying to make sense of the various ways in which business exercises power and influence over the policy process. Agency power is exercised by individual business people, firms or business associations and may take several forms:

  • lobbying (either individual policy makers or ministries/groups/committees, and either as individual lobbyists or on behalf of a particular group or sector);

  • institutional participation in government committees or in the management of social service providers;

  • sponsorship and funding of political parties, think tanks and welfare institutions;

  • direct corporate social provision, where enterprises are able to determine the overall shape and extent of welfare receipts among employees and other citizens.

This book investigates all four alongside structural power – that is, the power to influence without taking direct action. Structural power is derived from the ownership and control of capital. It is manifested through various channels: control over investment, control over labour and through state revenue dependence, all of which impact on employment, state spending and the employment conditions of labour. Together, structure and agency confer onto business significant power and influence over policy outcomes.

Measuring the extent of business influence, however, is an extremely complex matter. Business is not able to (nor does it have the desire to) influence all forms of policy making all the time. Where it acts, and how it acts, depends on the policy area and prevailing political context. A simple model of business engagement in the policy process is outlined in Figure 1.1.

Introduction: globalisation, corporate power and social policies

Figure 1.1: A simple model of business influence on social policy

(p.7) For business to influence through agency, its interest needs to be stimulated. Whether or not business chooses to act, however, depends on the policy of the particular business interest, available resources, and the likely result should it not act. Should action follow, business may influence policy outcomes, but in the case of lobbying, whether business gets its way will depend on many other factors, including the relative strength of its campaign, support or opposition from other groups including trade unions and civil society and the preferences of policy makers themselves. Business successes and even their engagement in the policy process at all, will also depend on the structural context. If business is confident that its interests will be defended by politicians without it having to act, it is unlikely to do so. In other words, the degree of structural power also shapes the policy context within which action is taken, and is therefore an important determinant in whether or not business will choose to act, and whether or not it needs to act, in order to defend its interests. Chapter Two of this book outlines the relationship between structure and agency in more detail.

As well as helping us to understand the relationship between business and policy making, this model of power and influence also highlights business’ involvement in direct provision in the workplace, the wider community and in state welfare institutions. In both cases, initial interest in provision is important, as are subsequent decisions to act.

Structural power and social policy

Although corporate structural power is today less and less discussed in the social policy and politics literature, it remains crucial to an understanding of social policy development. Whenever governments introduce or shape social policies in order to meet the needs of business, as they often must, policy makers can be said to be responding to structural power. Accounts of welfare reform which highlight the role of social policies in meeting specific business needs, and the more general needs of industrial capitalism, are often termed ‘functional explanations’ and have been most highly developed by those working within a neo-Marxist framework (see, for example, O’Connor, 1973; Gough, 1979; Offe, 1984). According to such accounts, the needs of business are the most important determinants of welfare outcomes. Due to the importance of business, governments introduce social reforms only when due consideration has been given to their likely positive and negative impacts on productivity, profitability and competitiveness within the private sector. It is further argued that welfare states actually help to facilitate profitability through investing in human capital, and help to increase social harmony by providing important social services. On the one hand, state investment in education, training and healthcare, for example, has helped to increase productivity through fostering skills and cutting absenteeism through sickness, while measures designed to support the family, such as income maintenance, child benefits and education, have reduced the costs of raising the next generation of workers. On the other (p.8) hand, welfare provision has helped to make living within capitalism more palatable for workers, which in turn has reduced the threat of political challenges to business. Without state provision, workers would more likely have pushed for employers to bear more of a responsibility for familial costs, either through occupational provision (as in the US) or through higher wages1.

The structural mechanism operates to persuade politicians of the need to foster business-friendly policy environments. This is even more important in a globalising world, as Chapter Three illustrates. As a result of globalisation, firms have an increasing range of possible investment locations to choose from, and governments have to pay more attention to the relative attractiveness of their own states to mobile capital. Business investment helps to determine future government revenues, job opportunities and income levels. However, while governments always have to keep an eye on the ways in which policies impact on business, they still have available to them a wide range of policy options – hence the existence of different welfare states and different social policies over time. Chapter Three outlines and offers measures of changing structural power under globalisation.

Corporate agency and social policy: business opinion, business action and business influence

Just as structural power is variable, so business opinion on social policy, and agency power more generally, are variable. As we have seen already, business opinions and lobbying activities are both shaped by overriding structures. If structural power is strong, and if governments are already acting in the general interests of business, so business will not need to act. Conversely, if it is weak, business is more likely to try to steer policy towards its own agenda through political activities. However, what exactly constitutes the business agenda and business perspective in relation to social policy is not straightforward. This book illustrates that not all social policies, and not all forms of social provision, elicit the same response from business; some undermine and some better serve employers’ interests than others. The type of welfare provision in question (education, social security, health, and so on), the way it is funded (or more specifically, the relative tax burden falling on business) and delivered (whether by the state or by employers), will affect how business perceives and responds to it.

The potential impact of welfare on firms also depends on the nature of the firm itself. Although industrial capital may benefit from a more highly skilled and amenable workforce, for example, some firms will face higher costs should welfare be funded from taxation on labour (in higher wage demands) and lower domestic sales (as more revenue is taken and controlled by the state). Financial capital, on the other hand, with generally smaller workforces, will benefit less directly from social investments, while spending on public programmes may both fuel inflation and reduce savings (Pfaller et al, 1991), not to mention impact negatively on private insurance sales. As a result, industrial (p.9) capital more readily accepted the need to implement the 1942 Beveridge proposals than finance capital, which was generally more reticent (Melling, 1991, p 233).

Firm size is also an important determinant of business views. Larger firms and business associations tend to be more long term in outlook and, as a result, have tended to accept the case for welfare expansion more readily than smaller companies. Larger industrial firms were eager to find replacements for their own, increasingly expensive occupational schemes that many companies provided at the beginning of the 20th century. Larger companies and business collectively have also benefited from longer-term investments, most markedly in education and training, which have improved the quality of the labour they employ. Social security provision has also helped the larger and more heavily unionised employers to shed unproductive labour. Since larger firms have been able to absorb any additional costs associated with welfare expansion with greater ease, they have also gained a competitive advantage over smaller firms faced with similar welfare costs.

Despite this range of factors that militate against the formation of a coherent business approach to social policy, clear business opinions on social policy are nevertheless emerging at various levels. Chapter Four provides evidence that an international business view and approach to social policy has emerged in recent years. Globalisation has increased business’ capacity for organising on the international stage, and is now far more active in engaging with social policy concerns than it has been in the past. Not surprisingly, the key concerns of international business centre round the free movement of capital and the maximisation of profits. Business requires a suitably educated and trained workforce that is productive but relatively inexpensive. It also requires access to markets. To this end, international business has pushed for general reductions in the ‘unproductive’ state, including taxation and spending on social protection and healthcare, and an expansion in the ‘productive’ state, most clearly education and training services. Thus, only minimalist welfare states, designed to provide temporary or basic protection when markets fail and where the private sector cannot provide assistance, are considered by international business to be compatible with global capitalism. These views are, in fact, very close to those promoted by international governmental organisations (IGOs) today, from the European Union (EU) to the World Bank.

The emphasis on productive welfare has also occurred at the level of the nation state. This has certainly been the case in the UK since the 1970s and under both Conservative and Labour governments. Each steered social policy towards productive provision designed to improve competitiveness and productivity. For its part, business has also played an increasingly important role in the formation of social policy discourse and has become more active in a range of welfare services since the late 1970s. These developments are discussed in Chapter Five. The key predictor of business interest in social policy, this chapter illustrates, is the extent to which social policies have an immediate and direct impact on labour costs, and the supply and qualifications of workers.

(p.10) On the national level, business has defended services that directly benefit business (such as infrastructure spending and education and training) and has attacked spending on services that are unproductive. The British welfare state today fits business preferences extremely well.

Conservative and Labour governments have also been persuaded of the need to incorporate business directly into welfare services, partly to steer welfare services towards business needs, and partly to inject into them the values of the private sector. However, Chapter Six again reveals variable interest and involvement on the part of local businesses. While business generally has become more interested in the merits of closer community involvement, and while private sector sponsorship of some welfare services has become more important, there is little evidence to suggest that companies have been eager to take up these new opportunities on the scale desired, or where they have become involved, that they have brought to the public sector the benefits that governments had hoped for. Various sections of this book attest to this fact. However, the increasing opportunities for engagement in welfare services does have one unexpected outcome in that it appears to facilitate the development of local business-dominated elite networks.

Firms have also responded to this greater emphasis on business engagement in social policy by adjusting their own occupational welfare and community involvement. While Chapter Seven does not find that firms have stepped in to fill the breach left by the withdrawal of state benefits, it shows that they do continue to make sizeable contributions to overall levels of social provision, and they have adjusted their own community involvement in response to changing demands and opportunities in local social provision. Again, however, business provision is variable. Only those forms of occupational welfare that increase the availability of key workers, such as childcare and training provision, and those forms of local corporate engagement that stand to bring obvious benefits to corporations have been expanded. Unconditional corporate philanthropy appears no longer to exist, if it ever did.

Together, these chapters not only investigate business power and influence on social provision, but also the levels and determinants of business interest in social policy as well as the extent of coherence in business views and responses to social policy. Chapter Eight draws the evidence together to return to the key question of the book: what are the views of business towards social policy, and how influential is it in determining levels and types of social provision?



(1) Rein (1996) illustrates that occupational welfare programmes are highly developed in countries with less comprehensive state provision, such as the US.